Profit Gap Analysis on the Small Scale Production of Shallot: A Case Study in a Small Village in East Java Province of Indonesia

This study attempts to contribute to poverty alleviation through increasing efficiency of input allocation which can raise profit of the small scale farmers without changing the technology they use. Accordingly, this study addresses the problem of allocative inefficiency and profit gap of the farmer’s shallot production. Double-log production function and polynomial cost function are applied to measure the profit gap analysis. The empirical results from double-log production function confirm that land, labor, fertilizer, and pesticide are allocated by farmers inefficiently. Furthermore, three simulations for efficient inputs allocation and profit gap analysis are taken into account based on the costs level spent by the farmers. The result shows that profit gaps are 4.72 percent, 13.96 percent and 17.92 percent for low, middle, and high input costs level, respectively.